Yahoo Inc. co-founder Jerry Yang is stepping down as chief executive, ending a rocky reign marked by his refusal to sell the Internet company to Microsoft Corp. for $47.5 billion — more than triple Yahoo’s current market value.

The change in command announced Monday won’t be completed until Yahoo finds his replacement. The Sunnyvale-based company said it is interviewing candidates inside and outside Yahoo in a search led by its chairman, Roy Bostock, and the executive recruitment firm Heidrick & Struggles.

“Jerry and the board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level,” Bostock said.

Yang, who started Yahoo with Stanford University classmate David Filo in 1994, will revert to “Chief Yahoo,” a titular role he filled before replacing former movie studio boss Terry Semel as CEO in June 2007. He will also remain on Yahoo’s board of directors.

“I will continue to focus on global strategy and to do everything I can to help Yahoo realize its full potential and enhance its leading culture of technology and product excellence and innovation,” Yang said in a statement.

Although Yang had publicly expressed his desire to remain at the helm, Yahoo’s board faced intensifying pressure to cast him aside as the company’s shares plunged to its lowest levels since early 2003. The stock fell 19 cents Monday to close at $10.63 — a fraction of Microsoft’s last bid of $33 per share in early May.

Microsoft CEO Steve Ballmer huffily withdrew the offer after Yang sought $37 per share. The negotiating breakdown triggered a shareholder revolt led by billionaire investor Carl Icahn, who called for Yang’s ouster in July before reaching a truce that put him and two allies on Yahoo’s 11-member board.

Yang, 40, had been pursuing a strategy that he thought would prove Yahoo was worth more than Microsoft was willing to pay, but the rapidly deteriorating economy made a comeback seem increasingly unlikely. As it is, Yahoo’s earnings have been eroding for three years, disillusioning investors amid a management exodus that indicated even Yang’s own troops were losing faith in him.

Mr. Yang, a co-founder of Yahoo, assumed control of the company a year and a half ago from Terry Semel, a Hollywood studio boss that he hand-picked for the job. His tenure has been a tumultuous period during which Yahoo rejected a $47.5 billion takeover offer from Microsoft and failed to cement an advertising partnership with Google.

The Microsoft offer was worth $33 a share — more than three times Yahoo’s closing price of $10.63 on Monday. The stock was up more than 4 percent in after-hours trading.

Mr. Yang, 40, helped turn Yahoo from an early directory of Web sites into a sprawling Internet giant that is used by nearly 500 million people. But shareholders have been asking whether Mr. Yang was the right man to run the company, which last month cut its sales forecast and announced plans to lay off workers.

“It’s definitely a positive from a shareholder perspective,” Ross Sandler, an analyst at RBC Capital Markets, said of Mr. Yang’s departure. “Jerry has done less than a stellar job since taking the reigns from Terry Semel last year, not just completely botching the Microsoft deal, but with poor execution and multiple company restructurings that have done little to restore confidence for any of Yahoo’s shareholders, employees or customers.”

Mr. Sandler also raised the possibility that Mr. Yang’s departure could rekindle interest at Microsoft in an acquisition. Steve Ballmer, Microsoft’s chief executive, has complained that Mr. Yang had no interest in the deal. A Microsoft spokesman declined to comment.

Yahoo said in a statement that Mr. Yang would return to his earlier role as “Chief Yahoo,” a corporate visionary role, and remain on the company’s board. He will work with independent directors and Roy J. Bostock, the chairman, in the search for a new chief executive. Yahoo has also hired the executive search firm Heidrick & Struggles.

“Having set Yahoo on a new, more open path, the time is right for me to transition the C.E.O. role and our global talent to a new leader,” Mr. Yang said in the statement.

“All of you know that I have always, and will always bleed purple,” he wrote in a separate memo to his staff, referring to Yahoo’s corporate color.

Times are tough all over right now. Even some of the Silicon Valley’s giants are not immune to a struggling economy. Battered by plunging profits and a rough economic outlook, Yahoo announced yesterday that it will layoff at least 10% of its staff, amounting to up to 1,500 jobs. I guess none of them will be buying the new Android phone today.

Yahoo said Tuesday that it would lay off at least 10 percent of its 15,000 workers as it tries to bring down its expenses. It said reduced marketing budgets had taken a bite out of its online advertising business, sending its net income for the third quarter tumbling by 64 percent.

The company also lowered its revenue projections for the remainder of the year and said it was too early to make forecasts for 2009.

The results come as strategic moves that Yahoo has been considering, including a search advertising partnership with its rival Google and a merger with Time Warner’s AOL unit, have gotten bogged down, leaving the company with few options but to cut expenses, analysts said.

“They just have to batten down the hatches, lighten the load and ride this thing out,” said Jeffrey Lindsay, an analyst with Sanford C. Bernstein & Company.

“Hopefully,” he added, “they will make it to the other side with their cash intact, presumably as a smaller and more efficient organization.”

Yahoo had 15,200 employees at the end of the third quarter. The much-anticipated round of layoffs comes on the heels of another 1,000 job cuts in late January.

“We have been disciplined about balancing investments with cost management all year, and have now set in motion initiatives to reduce costs and enhance productivity,” said Yahoo co-founder and CEO Jerry Yang in a written statement.

“The steps we are taking this quarter should deliver both near-term benefits to operating cash flow, and substantially enhance the nimbleness and flexibility with which we compete over the long term,” he added.

In a conference call after the results were announced, Yang said the company was working to reduce costs in other ways than just slashing jobs, including relocating offices and consolidating real estate. “We are identifying ways we can operate more efficiently,” he said.

The Silicon Valley company announced the latest round of cuts against a backdrop of poor third-quarter results and a grim economic forecast. The company’s profit tumbled 64%, to $54 million, or 4 cents per share, from $151 million, or 11 cents per share, in the same quarter a year ago.

It is Yahoo’s second significant round of layoffs this year. In January, the troubled Internet giant laid off 1,000 workers, but the cuts have done little to assuage investor confidence.